More analysts with bubble warnings
Ok, this is all getting a bit weird. First we heard from bank economists, Flaherty and the PM – the general message tended towards caution: don’t buy what you can’t afford, make sure you can handle rising interest rates, we’ll keep an eye on the Canadian housing market to make sure it doesn’t get too bubbly, that kind of thing. Now we’ve got more warnings showing up in the mainstream press, but these are a lot more direct:
“If you’re somebody in a situation that you have only five per cent down and you’re stretching to get in the market with a 35-year amortization, I think that would be a very precarious situation right now,” said BMO Capital market economist Robert Kavcic.
Conversely, he said, “if you’re sitting on a pile of cash and looking to move into the real estate market, it would almost be a no-brainer to just wait for lower prices.”
Mr. Kavcic isn’t the only one in that article that thinks buying right now would be a mistake:
“It’s absolutely not debatable that housing prices cannot rise faster than incomes over the long term,” said Will Strange, professor of real estate and urban economics at the Rotman School of Management.
Sooner or later, incomes have to rise, or home prices fall, for balance to be attained.
Many analysts argue that home prices are not yet out of line with the incomes it takes to pay for them, Strange said. Yet with the job market still weak, and unlikely to drive new employment and higher wages, odds are that if something’s got to give, it will be prices.
“If I didn’t personally have most of my wealth tied up in housing, this would not be the time that I would choose to jump in,” Strange cautioned.
Now keep in mind these comments refer to the national Canadian real estate market where house price increases are starting to outpace incomes in many cities. Here in Vancouver things are different: house prices have been outpacing incomes for years.
January 13th, 2010 at 2:14 pm
Whats with all the Halifax talk. Went to school there trust me it sucks! its cheap for a reason!
January 12th, 2010 at 7:09 pm
"Makes ya wonder if the BOC hired him so that they could muzzle him."
Thanks for a good laugh.
January 12th, 2010 at 10:07 am
@ReadyToPop:
When he was still in the private sector, in September 2008, Wolf had warned that the Canadian housing market was headed for a U.S.-style meltdown due to household finances that were in worse shape than in the United States or United Kingdom.
——
Makes ya wonder if the BOC hired him so that they could muzzle him.
January 12th, 2010 at 6:54 am
@crabman: sounds like something to write to our reps about…
January 12th, 2010 at 6:22 am
“There is no doubt that Vancouver is in the shadow of Beijing.”
So…. the rich Asians in Asia end up screwing over the rich Asians in Vancouver?
Oh delicious irony, you taste like the finest Champagne.
January 12th, 2010 at 3:38 am
Well of course that's just preposterous, even just looking at the Canadian average, or just Toronto, which amounts to about the same thing.
The song remains the same. Perhaps McLean's can create a Canadian "Person of the Year"?
As I said above it's not the BoC's job to attack the Cons' central planning of the housing market with interest rate increases that would cause huge collateral damage. However, they seem to be engaged in a collusion with the government (which they are supposed to be independent of in policy matters) to openly deny a housing bubble, which is something else and altogether contemptible. David Dodge was not shy of calling a spade a spade when the Cons brought out the 0/40.
But who should be surprised when we have our own Oliver Cromwell at 24 Sussex who despises any institution that is independent of his own whims.
January 12th, 2010 at 1:17 am
Look for downpayments and amortization restrictions to be tightened in 2010. Will it slow down banks lending to anyone who can fog a mirror? Don't bet on it.
January 11th, 2010 at 11:16 pm
I love how the Bank of Canada says there's no bubble. At least they're consistent. I mean, if house prices increase 20% per year, and that's a bubble, then what can you say about a decade of 10-20% increases? Someone might say the Bank of Canada wasn't doing a good job. Of course they try to pin it all on Flaherty, who goosed the market with the CMHC. Granted, it is mostly his fault and the Conservatives will burn for this.
But Greenspan & Bernanke were rightfully blamed for blowing bubbles in the US. And their repeated dismissals, excuses, and lack of action has not endeared them to history. Carney should meet the same fate, if only for the same reasons. Does anyone even do their job anymore?
I see Harper is now talking about how our country is unstable while parliament is open, because all those other parties start questioning whatever his government does – like torture Afghanis. What a joke. Does this wannabe tinpot dictator even realize how he comes off?
http://www.vancouversun.com/business/Parliament+c…
January 11th, 2010 at 11:12 pm
@patriotz: Interest rates were down all over the world look for some other clue to get the fact straight that Vancouver real estate and Canadian real estate is REAL ESTATE anywhere else it is just a property like any other property like scullboys underpent and lingerie,toys etc.
January 11th, 2010 at 10:58 pm
@Boombust: Well, the States has been the biggest middle class market likely to come & spend money. If the Olympics are a PR campaign for Vancouver as suggested by many, than I imagine it does matter if Americans don't watch.
January 11th, 2010 at 10:55 pm
Bank of Canada says sees no housing bubble yet
When he was still in the private sector, in September 2008, Wolf had warned that the Canadian housing market was headed for a U.S.-style meltdown due to household finances that were in worse shape than in the United States or United Kingdom.
(Wolf's past statements have already been pointed out here…but this time it's Reuters saying it in a current article…RTP)
January 11th, 2010 at 10:54 pm
Olympic rental market "oversupplied". Includes the classy advice not to plan your food budget around gouging foreigners.
http://www.vancouversun.com/travel/Olympic+proper…
January 11th, 2010 at 10:46 pm
Yeah most of economists are under institutional influance and there is a status in each country the way they should represent their opinions for that they always like to chose medium way but on this board you are free to represent cake without cream.
*This recent campain in Canada by bankers economists is nothing more than spin to convert tenants and owner into traders.
*If any of you know about trading it is popular in USA slowley slowley TD Canada Trust adopt it through Td ameritrade and Waterhouse now a day Scotia,Rbc,and Bank of Montreal bmo also entered into same gaiming tools.
What they want?
*The want people to use their trading service instead of buying ROCK SOLID VANCOUVER REAL ESTATE.
Why?
*Owners average monthly payment=$1500
Profit $3000-1500 payment=$1500
Tenants rent=1500
Adicted Traders monthly fee =$7000 profit and loss is unknown but fee is visible.
*These banks have start providing trading equipments when trading profit is down by billions of dollars and countinue to do so.
Common Sense
*When there is visible profit of $1500 on $1500 payment why not buy Vancouver Real Estate and Enjoy Your Life.
What Bubble?
*When Vancouver real estate emerged as leading real estate to rise through recession then what is bubble in the rising economy?
January 11th, 2010 at 10:37 pm
Are you feeling luck punk, say Flaherty. No bubble? C'mon, if the 'average price in vancouver is pushing a million and the average wage is under 70, how is this not a bubble?
http://www.financialpost.com/story.html?id=242932…
will they call it a crash if intrest rates go up by 1%when peoples monthly payments outstrip thier income? Ya thats right sucker, its YOUR fault
January 11th, 2010 at 9:04 pm
#29 @logic: Economics 101 is a collection of largely discredited example problems. If it were anything approaching a science, they'd bust out the differential equations and model things as dynamical systems. Instead you get these strange axioms like "rational expectations" which somehow make it all tractable to deductive methods. Well I'm sorry, but the real world doesn't work that way at all.
The fact that this continues into the second year and up to the level of policy making is truly frightening. How many classical economists can give a coherent explanation of how credit and reserves are created in the banking system? How many can't even explain bubbles like the one we are in, without resorting to some deus ex machina? I get the impression that economists just sit around and argue about the basics of how things work, with little or no empirical verification of hypotheses. It's better than nothing in the same way that alchemy is better than witchcraft.
The depressing fact is, people 80 years ago had a better understanding of the issues than we do today. Most economists are so busy grinding their own axes now that they can't be bothered to read what Keynes and Fisher actually wrote. I like economists such as Steve Keen, because their models actually bother include debt in the picture, but most of the discipline reeks of failure. Hopefully they will clean house and we'll get a science of economics that works, but given what has happened to the banking and accounting professions recently I don't have much hope.
The harder sciences like physics may have their comeuppance someday (just *look* at string theory), but for now economists are near the bottom of my dog heap as people who are not just likely to be wrong, but also dangerous to listen to. That will change if they start making sense.
January 11th, 2010 at 8:30 pm
patriotz says:
The folly is to try to use some perceived desirability to justify prices being out of whack with rents. The desirability premium for prices should be the same, proportionally, as for rents. And so it was historically for Vancouver – a price/income of about 4 (also the case for California).
the distortion comes from the lack of sfh lots. the ratio drops the further you get from the ocean. perhaps more will look to take the rental discount over ownership-values will drop, rents will rise and a new equilibrium would establish. if you disagree, then i agree with dave, you're basically saying we're in a 25 yr. bubble.
January 11th, 2010 at 8:14 pm
"…and thus little if any buzz just weeks shy of the opening ceremonies, the Vancouver winter games could fall flat Stateside.”
Hmmm…Is it always about them?
January 11th, 2010 at 7:56 pm
@stagnate:
If you like you can use rent/income as a way of measuring the intangible desirability of a city – the higher it is the more desirable the city is, because the more non-shelter consumption people are willing to forego to live there.
And Vancouver would come out ahead of Calgary et al due to its lower incomes. But not by much.
The folly is to try to use some perceived desirability to justify prices being out of whack with rents. The desirability premium for prices should be the same, proportionally, as for rents. And so it was historically for Vancouver – a price/income of about 4 (also the case for California).
January 11th, 2010 at 7:22 pm
zalm, rents aren't the same, even by cmhc calculations. incomes in the various cities are probably similar, comparable rents would be a function of comparable incomes. when demand exceeds supply for land rents and real estate values become a function of what the demand can afford.
January 11th, 2010 at 7:20 pm
Olympic exuberance and Vancouver RE market fantasies are joined at the hip, so we are following the Games with interest.
At the end of the Friday Free For All thread, 'Lilypad' linked us to an ABC News clip headed “Will the Winter Olympics Be a Bust?"
See here for link to the clip & a transcript -
http://tinyurl.com/yd7t9bx
Some excerpts -
“So guys, it’s an Olympic year (as it is now every couple of years!), the Winter Olympics are kicking off in Vancouver next month. … Contrary to the usual Summer Olympic promotional blitz, [there is] next to no fanfare surrounding these games. There is actually even advertising time still up for grabs, [which] is virtually unheard of. And so we wondered what exactly is going on.”
“There is no doubt that Vancouver is in the shadow of Beijing.”
“On the eve of an Olympics without readily bankable favorites and thus little if any buzz just weeks shy of the opening ceremonies, the Vancouver winter games could fall flat Stateside.”
“NBC says it could lose hundreds of millions of dollars on this year’s Olympiad with companies like Johnson and Johnson, GM, bank of American and Home Depot deciding not to buy ad time.”
January 11th, 2010 at 7:14 pm
@Olympigs:
BoC is acting correctly.
The problem is that interest rates for mortgage lending are artificially low due to government guarantees, not that interest rates on all loans are too low. Talk to a business person looking for financing to see what I mean.
The government has undertaken a policy of deliberately inflating house prices and it's not the BoC's job to combat this. It's their job to control consumer price inflation.
Solution of course is to get rid of government guarantees on mortgage lending and let rates and terms reflect true market risk. End Soviet-style central planning. It didn't work for them and won't work for us.
The job of opposing wrongheaded government policies belongs to politicians. And all citizens.
January 11th, 2010 at 7:11 pm
@stagnate: I don't consider myself a 'hardcore bear', but if people would rather live in Vancouver than Calgary, Toronto or Ottawa why aren't rents higher here? Shouldn't demand have driven rents up? You might think this city is more universally desirable than it actually is..
David Wolf, Bank of Canada – Different Master, Different Message « Vancouver Real Estate Anecdote Archive Says:
January 11th, 2010 at 7:10 pm
[...] This priceless juxtaposition of quotes posted by crabman at vancouvercondo.info 11 Jan 2010 1:17 pm [...]
January 11th, 2010 at 7:00 pm
patriotz says:
No, what actually proves it false is that rents in Vancouver are about the same as in Calgary, Toronto, and Ottawa, which means objectively that people don’t want to live in Vancouver any more than in those other places.
excuse me? was that a joke post or are you trying to be serious? even hard core bears aren't buying that crap.
January 11th, 2010 at 6:47 pm
@Dave:
I did not claim there is no utility in ownership.
The metric of utility of ownership is the market rent of the property, i.e. its earnings.
Some owner-occupiers may derive additional utility (what we call consumer's surplus), but there is no objective way to measure this. The purchase price is not an appropriate metric because it includes expectations of future sale price, i.e. speculation. That's not utility, that's a capital gain.